Edited version of your written advice

Authorisation Number: 1013094339675

Date of advice: 28 September 2016

Ruling

Subject: GST and entitlement by a charity to input tax credits

Question 1

Is the charity (you) entitled to the input tax credits (ITCs) under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for acquisition of goods or services associated with its charitable purpose?

Answer

The taxable supplies of goods or services acquired by you to be provided to members or supplied by you to members in carrying out your charitable purpose satisfy the requirements of a creditable acquisition under section 11-5 of the GST Act. That being the case you have an entitlement to ITCs for the creditable acquisitions you make subject to any time limits on that entitlement.

Relevant facts and circumstances

You are registered for goods and services tax (GST). You are also registered with the Australian Charities and Not-for-profits Commission (ACNC) as a charity and endorsed by the Australian Taxation Office (ATO) to access GST concessions and income tax exemptions.

The Act primarily provides for your incorporation and regulation. The rules dealing with your internal governance consist of set laws under the Act, your constitution and any replaceable rules that apply to you.

Your enterprise involves undertaking activities directed at carrying out the objectives set out in the rules including allocating and distributing, at your discretion, moneys for the general welfare of the members for matters including; relief of poverty and sickness; advancement of education; relief housing;… providing sporting assistance; otherwise promoting and benefiting the general welfare of the members.

You have the power under the Rules to apply, solely towards the promotion of your objects, your funds, and property however derived and to do anything lawful as may be necessary to carry out those objectives.

You contract with third party suppliers who are registered for GST to provide goods and services to members for the purpose of meeting your objectives. The acquisition process for goods and services involves:

• the member obtaining a quote for goods or services from a supplier and making an application to you for assistance

• you approve or decline the expenditure based on the member's eligibility and funds remaining in the category for that kind of assistance

• if you approve the expenditure you enter into an agreement with the respective supplier and provide the supplier with a purchase order

• the supplier issues you with an invoice/tax invoice requiring you to pay for the goods or services in question, and

• once paid, the supplier provides the goods or services to the individual member or alternatively may deliver the goods to you to provide to the individual member. The member makes no payment to the supplier or to you in relation to the supply of goods or services.

You provided a sample of:

• three documents entitled tax invoices each issued to you by the supplier

• applications for assistance completed by a member. Those application forms refer that the approval process involving creating and sending a purchase order to a supplier and nominating the assistance category to which the acquisition relates, and

• four samples of purchase orders you sent to suppliers each nominating the member and giving instructions for the supplier to email a tax invoice with the supplier's bank details.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-20

A New Tax System (Goods and Services Tax) Act 1999 section 11-5

A New Tax System (Goods and Services Tax) Act 1999 section 11-15 and

A New Tax System (Goods and Services Tax) Act 1999 section 11-20.

Reasons for decision

Legislation

Under section 11-20 of the GST Act you are entitled to the ITCs for any creditable acquisition that you make. You make a creditable acquisition under section 11-5 of the GST Act if, amongst other things, you acquire anything solely or partly for a creditable purpose and the supply of the thing to you is a taxable supply.

Section 11-15 of the GST Act provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However you do not acquire the thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed or the acquisition is of a private or domestic nature (subsection 11-15(2) of the GST Act).

Question 1 Input tax credits on acquisitions

On the facts provided, you are registered for GST and you provide consideration to third party suppliers/retailers for the supply of goods or services pursuant to an arrangement you have with the supplier to have those goods and services provided to members. To the extent that the supply of goods and services by the third party suppliers satisfy the requirements of section 9-5 of the GST Act those supplies would be taxable supplies.

The issue that arises under section 11-5 of the GST Act, is whether the taxable supplies of goods or services made by the suppliers were acquired by you (whether you are the recipient) and if so were they acquired for a creditable purpose?

Are you the recipient of the supply?

As explained in Goods and Services Tax: supplies (GSTR 2006/9 you make an acquisition if you are the recipient of a supply. Consequently, it is the recipient that must satisfy the creditable purpose requirement in section 11-15 of the GST Act.

The Commissioner explains at paragraph 115 of GSTR 2006/9 that an analysis of a tripartite arrangement (as is the case here) may reveal:

• a supply made to one entity but provided to another entity

• two or more supplies made, or

• a supply made and provided to one entity and consideration paid by a third party.

There is an agreement between you and the supplier who makes the supply in question at your request and in accordance with your instructions as evidenced by the purchase order.

Under that agreement you are liable to pay the supplier for the supply as evidenced by the invoices/tax invoices issued to you by the supplier. The member has no agreement with the supplier and has no liability to pay the supplier.

This is consistent with proposition 13 in GSTR 2006/9 where there is a supply made by B to A that B provides to C where A has an agreement with B for B to provide a supply to C. On that basis you are the recipient of the supply notwithstanding that the supply is provided to a member by the supplier or alternatively a supply is made to you which you then supply to the member. In either case you are the recipient of the supply from the third party supplier.

Your arrangement with the supplier points to you being the recipient of the supply from the supplier.

Is the acquisition for a creditable purpose?

Whether something is acquired in carrying on an enterprise requires a connection or link between the acquisition and the enterprise. In Goods and Services Tax: when do you acquire anything or import goods solely or partly for a creditable purpose? (GSTR 2008/1) the Commissioner considers that it is not the inherent nature of the expenditure that decides whether an acquisition is creditable it is whether, on an objective assessment, there is a connection between the thing acquired based on all the facts and circumstances.

At paragraph 70 of GSTR 2008/1 the Commissioner sets out some factors that would suggest that an acquisition is made in carrying on an enterprise including:

• …

• the acquisition is made by the entity in accordance with, or to satisfy, a statutory requirement imposed on the enterprise.

The Commissioner cautions at paragraph 87 of GSTR 2008/1 that particular care must be exercised if the thing acquired is of a kind commonly used for private or domestic purpose and a connection to the relevant enterprise is not readily apparent. In such cases, unless a clear association between the acquisition and the enterprise can be demonstrated, it is unlikely that the acquisition is acquired in carrying on the enterprise.

If a thing is acquired by one entity but provided to another, the acquisition is not necessarily made in carrying on the first entity's enterprise.

Subsection 9-20(1) of the GST Act provides that an enterprise includes an activity or series of activities done by a charity.

Here you acquire goods or services from suppliers that are of a kind commonly used for private or domestic purposes that fall within the fund assistance categories referred to in the rules. Under the rules you have the power to do anything lawful to carry out your objectives including for the general welfare of the members.

It follows that where acquisitions are made by you from third party suppliers as part of your activities as a charity for the welfare of members then those acquisitions are connected or related to the enterprise you carry on. This is the case notwithstanding that the acquisitions will benefit the individual member.

Accordingly, providing the acquisition does not relate to making supplies that would be input taxed or of a private or domestic nature you will acquire a thing for a creditable purpose.

The taxable supplies of goods and services acquired by you to be provided to members or supplied by you to members in carrying out your objectives satisfy the requirements of a creditable acquisition under section 11-5 of the GST Act. You have an entitlement to ITCs for the creditable acquisitions you make subject to any time limits on that entitlement.

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